AS Tallink Grupp Audited Annual Report of the 2018 Financial Year

Tallink Grupp AS and its subsidiaries (the Group) carried a record number of 9 756 611 passengers in 2018, 891 passengers more than in 2017. The number of cargo units transported increased by 5.7%. The Group's revenue amounted to EUR 949.7 million (EUR 967.0 million in 2017). EBITDA was EUR 142.8 million (EUR 158.3 million, 2017) and net profit for the year EUR 40.0 million or EUR 0.06 per share (EUR 46.5 million or EUR 0.07 per share in 2017).In 2018, the Group's total revenue decreased by...

Tallink Grupp AS and its subsidiaries (the Group) carried a record number of 9 756 611 passengers in 2018, 891 passengers more than in 2017. The number of cargo units transported increased by 5.7%. The Group's revenue amounted to EUR 949.7 million (EUR 967.0 million in 2017). EBITDA was EUR 142.8 million (EUR 158.3 million, 2017) and net profit for the year EUR 40.0 million or EUR 0.06 per share (EUR 46.5 million or EUR 0.07 per share in 2017).

In 2018, the Group's total revenue decreased by EUR 17.3 million to EUR 949.7 million.

• Total revenue from route operations (core business segments) increased by EUR 0.7 million to EUR 883.7 million despite a EUR 7.4 million decrease in revenue from the Finland-Sweden segment, which was mainly due to the 68-day maintenance of the cruise ferry Baltic Princess.
• Other revenue streams (segment other) decreased by EUR 19.4 million to EUR 74.8 million. The largest decrease occurred in charter revenue, which dropped by EUR 10.8 million because fewer ships were chartered out. There was also lower revenue from onshore shops (in Tallinn Old Harbour area) as the price level of products sold in onshore shops in Estonia has become less competitive after recent years' excise duty increases. In addition, there was lower revenue from hotels because Tallink Pirita Spa Hotel in Tallinn ceased operations from November 2018 due to the sale of the hotel property by its owner.

The cargo business sustained growth in 2018. Transported cargo volumes increased by 5.7% and cargo revenues grew by 6.1% or EUR 7.1 million to EUR 124.9 million. The number of transported cargo units grew in all geographical segments, supported by positive economic developments in the Group's main markets.

In 2018, the Group's ships carried a total of 5.1 million passengers on the Estonia-Finland routes, 0.3% more than the year before, and the number of cargo units transported on the routes increased by 5.4%. On the Tallinn-Helsinki route competition increased through capacity added by competitors, which put pressure on ticket prices. However, the new shuttle vessel Megastar improved the efficiency of shuttle operations and the Group was able to improve the segment result despite a challenging competitive environment. The segment's revenue increased by EUR 1.5 million to EUR 356.0 million and the segment's result increased by EUR 2.4 million to EUR 80.3 million.

The Finland-Sweden routes' revenue decreased by EUR 7.4 million to EUR 337.5 million and the segment's result decreased by EUR 2.3 million to EUR 16.2 million. The first-quarter maintenance and repair of the cruise ferry Baltic Princess affected the Finland-Sweden segment's carriage volumes and financial result. The segment's result was also weakened by a rise in bunker prices which increased fuel costs.

The Estonia-Sweden routes' revenue grew by EUR 1.7 million compared to 2017. Growth was supported by a 0.4% higher number of passengers and a 10.9% increase in the number of transported cargo units. The segment's result decreased compared to the previous year due to higher fuel costs attributable to a rise in bunker prices.

The Latvia-Sweden route's revenue increased by EUR 4.8 million compared to 2017. Growth was supported by a 7.0% higher number of passengers and a 24.5% increase in the number of transported cargo units. Positive development of the route's carriage volumes and revenue continued in 2018. However, due to higher fuel costs resulting from an increase in bunker prices, the segment result improved by only EUR 0.2 million to EUR -1.0 million.

In 2018, the Group's revenue and operating result were influenced by the following operational factors:

• The number of passengers travelling on the Group's ships increased in almost all geographical segments (Estonia-Finland, Estonia-Sweden and Latvia-Sweden).
• The number of cargo units transported on the Group's ships increased in all geographical segments.
• The first-quarter maintenance and repair of the cruise ferry Baltic Princess affected the Finland-Sweden segment's carriage volumes and financial result.
• Charter revenue decreased compared to the same period last year as fewer ships were chartered out. 
• An increase in bunker prices drove up fuel costs.

Key figures

For the year ended 31 December	2018	2017	2016
Revenue (million euros)	949.7	967.0	937.8
Gross profit (million euros)	183.8	194.6	192.6
EBITDA¹ (million euros)	142.8	158.3	149.5
EBIT¹ (million euros)	63.5	71.9	71.6
Net profit for the period (million euros)	40.0	46.5	44.1
Depreciation and amortisation (million euros)	79.3	86.4	77.9
Capital expenditures¹ (million euros)	36.4	219.3	68.9
Weighted average number of ordinary shares outstanding	669 859 148	669 882 040	669 882 040
Earnings per share¹	0.06	0.07	0.07
Number of passengers¹	9 756 611	9 755 720	9 457 522
Number of cargo units¹	384 958	364 296	328 190
Average number of employees¹	7 430	7 406	7 163
As at 31 December	2018	2017	2016
Total assets (million euros)	1 500.9	1 558.6	1 539.0
Total liabilities (million euros)	644.0	722.3	729.1
Interest-bearing liabilities (million euros)	510.1	560.9	558.9
Net debt¹ (million euros)	428.0	472.0	480.1
Net debt to EBITDA¹	3.0	3.0	3.2
Total equity (million euros)	856.9	836.3	809.9
Equity ratio¹ (%)	57.1%	53.7%	52.6%
Number of ordinary shares outstanding	669 865 540	669 882 040	669 882 040
Equity per share¹	1.28	1.25	1.21
Ratios	2018	2017	2016
Gross margin¹ (%)	19.4%	20.1%	20.5%
EBITDA margin¹ (%)	15.0%	16.4%	15.9%
EBIT margin¹ (%)	6.7%	7.4%	7.6%
Net profit margin¹ (%)	4.2%	4.8%	4.7%
ROA¹ (%)	4.1%	4.3%	4.6%
ROE¹ (%)	4.8%	5.6%	5.4%
ROCE¹ (%)	5.2%	5.3%	5.6%

¹ Alternative performance measures based on ESMA guidelines are disclosed in the “Alternative performance measures” section of the report.

Sales

The Group's revenue amounted to EUR 949.7 million in 2018 (967.0 million in 2017). Restaurant and shop sales on board and on shore in the total amount of EUR 524.4 million (536.7 million in 2017) contributed more than half of total revenue. Ticket sales amounted to EUR 243.8 million (242.7 million in 2017) and sales of cargo transport to EUR 124.9 million (111.7 million in 2017).

Geographically, 37.5% or EUR 356.0 million of revenue was generated by the Estonia-Finland routes and 35.5% or EUR 337.5 million by the Finland-Sweden routes. Revenue from the Estonia-Sweden routes was EUR 119.0 million or 12.5% and from the Latvia-Sweden route EUR 71.3 million or 7.5%. The share of revenue generated by other geographical segments decreased to 7.9% or EUR 74.8 million.

Earnings

Gross profit for 2018 amounted to EUR 183.8 million (EUR 194.6 million in 2017) and EBITDA to EUR 142.8 million (EUR 158.3 million in 2017). Net profit for 2018 was EUR 40.0 million (EUR 46.5 million in 2017). Net profit per share was EUR 0.06 (EUR 0.07 in 2017).

The Group's profitability was influenced mainly by the following factors:

• Fuel costs grew by EUR 16.6 million due to an increase in bunker prices. At the same time, the Group achieved fuel savings. Through various energy efficiency initiatives, in 2018 the ships' average fuel consumption per nautical mile decreased by 3.2%.
• Charter revenue decreased because fewer ships were chartered out compared to the previous year.
• Revenue from onshore shops (in the port area) decreased because the price level in onshore shops in Estonia has become less competitive after recent years' excise duty increases.
• Nonrecurring costs incurred and proceeds received in 2018:

• • Costs of EUR 1.5 million from the listing of shares on the Nasdaq Helsinki Stock Exchange.
  • Costs of EUR 0.9 million from the termination of the lease of an old fuel tank.
  • Other proceeds of EUR 1.0 million received under a compensation agreement with the former owner of the Superfast vessels.

The cost of goods sold at shops and restaurants, which is the largest operating cost item, amounted to EUR 217.2 million (EUR 227.8 million in 2017).

Fuel costs for 2018 amounted to EUR 102.5 million (EUR 85.9 million in 2017). Fuel costs were impacted by an increase in carriage capacity and higher fuel prices throughout the year. As a result, annual fuel costs increased by 19.3%. The Group makes continuous efforts to improve and optimize its day to day operations and lower the fleet's fuel costs.

The Group's personnel expenses amounted to EUR 218.1 million (EUR 215.2 million in 2017). The average number of employees in 2018 was 7 430 (7 406 in 2017).

Administrative expenses for the period amounted to EUR 55.5 million and sales and marketing expenses to EUR 69.3 million (EUR 53.7 million and 71.3 million respectively in 2017).

Depreciation and amortisation of the Group's assets totalled EUR 79.3 million (EUR 86.4 million in 2017). There were no impairment losses related to the Group's property, plant and equipment and intangible assets.

Net finance costs decreased by EUR 2.3 million compared to the previous year, mainly through EUR 3.9 million lower interest expenses. Total gains from exchange rate differences and the revaluation of cross currency and interest rate derivatives decreased by EUR 1.6 million.

The Group's exposure to credit risk, liquidity risk and market risks, and its financial risk management activities are described in the notes to the financial statements.

Liquidity and cash flow

The Group's net operating cash flow for 2018 was EUR 156.8 million (EUR 136.2 million in 2017).

The Group's cash used in investing activities was EUR 35.7 million (EUR 86.8 million in 2017). A number of investments were made to upgrade the ships' restaurants, shops and cabins. Investments were also made in the development of the online booking and sales systems.

In 2018, the Group's loan repayments totalled EUR 190.0 million (EUR 174.4 million in 2017), including the repayment of senior unsecured bonds of NOK 900 million issued in 2013. A term loan of EUR 110.0 million was taken to partly refinance the redemption of the bond issue.

Interest payments were EUR 19.4 million (EUR 20.7 million in 2017).

At 31 December 2018, the Group's cash and cash equivalents totalled EUR 82.2 million (EUR 88.9 million at 31 December 2017). In addition, available unused overdraft credit lines amounted to EUR 75.0 million (EUR 75.0 million in 2017).

In management's opinion, the Group has sufficient liquidity to support its operations.

Consolidated statement of profit or loss and other comprehensive income

For the year ended 31 December, in thousands of EUR	2018	2017
Revenue (Note 4)	949 723	966 977
Cost of sales (Note 5)	-765 892	-772 372
Gross profit	183 831	194 605
Sales and marketing expenses (Note 5)	-69 315	-71 339
Administrative expenses (Note 5)	-55 223	-53 012
Impairment loss on receivables (Note 23)	-272	-660
Other operating income	4 633	2 873
Other operating expenses	-153	-509
Result from operating activities	63 501	71 958
Finance income (Note 5)	8 631	12 738
Finance costs (Note 5)	-27 552	-33 987
Share of profit of equity-accounted investees (Note 12)	4	40
Profit before income tax	44 584	50 749
Income tax  (Note 6)	-4 535	-4 253
Net profit	40 049	46 496
Net profit attributable to equity holders of the Parent	40 049	46 496
Other compherensive income
Items that may be reclassified to profit or loss
Exchange differences on translating foreign operations	267	13
Other comprehensive income	267	13
Total comprehensive income	40 316	46 509
Total comprehensive income attributable to equity holders of the Parent	40 316	46 509
Basic and diluted earnings per share (in EUR, Note 7)	0.060	0.069

Consolidated statement of financial position

As at 31 December, in thousands of EUR	2018	2017
ASSETS
Cash and cash equivalents (Note 8)	82 175	88 911
Trade and other receivables (Note 9)	43 805	46 466
Prepayments (Note 10)	6 084	5 395
Prepaid income tax	46	40
Inventories (Note 11)	35 741	40 675
Current assets	167 851	181 487
Investments in equity-accounted investees (Note 12)	407	403
Other financial assets (Note 13)	320	344
Deferred income tax assets (Note 6)	17 934	18 722
Investment property	300	300
Property, plant and equipment (Note 14)	1 267 928	1 308 441
Intangible assets (Note 15)	46 164	48 900
Non-current assets	1 333 053	1 377 110
TOTAL ASSETS	1 500 904	1 558 597
LIABILITIES AND EQUITY
Interest-bearing loans and borrowings (Note 16)	78 658	159 938
Trade and other payables (Note 17)	100 682	95 548
Derivatives (Note 23)	918	29 710
Payables to owners	2	3
Income tax liability	116	34
Deferred income (Note 18)	32 113	31 429
Current liabilities	212 489	316 662
Interest-bearing loans and borrowings (Note 16)	431 477	400 968
Derivatives (Note 23)	0	4 688
Other liabilities	22	0
Non-current liabilities	431 499	405 656
Total liabilities	643 988	722 318
Share capital (Note 19)	361 736	361 736
Share premium (Note 19)	662	639
Reserves (Note 19)	69 474	68 946
Retained earnings	425 044	404 958
Equity attributable to equity holders of the Parent	856 916	836 279
Total equity	856 916	836 279
TOTAL LIABILITIES AND EQUITY	1 500 904	1 558 597

Consolidated statement of cash flows

For the year ended 31 December, in thousands of EUR	2018	2017
CASH FLOWS FROM OPERATING ACTIVITIES
Net profit for the period	40 049	46 496
Adjustments for:
Depreciation and amortisation (Notes 14, 15)	79 280	86 371
Net loss on disposals of property, plant and equipment	-104	-1 903
Net interest expense (Note 5)	19 806	23 744
Net income/expense from derivatives (Note 5)	-5 055	5 631
Profit from equity-accounted investees (Note 12)	-4	-40
Net unrealised foreign exchange loss/gain	4 294	-7 564
Treasury shares	6	0
Income tax (Note 6)	4 535	4 253
Adjustments	102 758	110 492
Changes in:
Receivables and prepayments related to operating activities	2 407	-6 707
Inventories	4 934	-1 956
Liabilities related to operating activities	6 723	-12 140
Changes in assets and liabilities	14 064	-20 803
Cash generated from operating activities	156 871	136 185
Income tax paid	-87	-7
NET CASH FROM OPERATING ACTIVITIES	156 784	136 178
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant, equipment and intangible assets	-36 037	-219 207
Proceeds from disposals of property, plant, equipment	368	132 448
Interest received	7	1
NET CASH USED IN INVESTING ACTIVITIES	-35 662	-86 758
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from loans received	110 000	184 000
Repayment of loans received	-69 666	-134 321
Repayment of bonds (Note 16)	-120 303	0
Change in overdraft (Note 16)	0	-40 110
Payments for settlement of derivatives	-3 569	-3 592
Payment of finance lease liabilities	-108	-102
Interest paid	-19 440	-20 744
Payment of transaction costs related to loans	-1 113	-216
Dividends paid (Note 19)	-20 096	-20 096
Reduction of share capital	-1	-1
Income tax on dividends paid (Note 19)	-3 562	-4 100
NET CASH USED IN FINANCING ACTIVITIES	-127 858	-39 282
TOTAL NET CASH FLOW	-6 736	10 138
Cash and cash equivalents at the beginning of period	88 911	78 773
Decrease/increase in cash and cash equivalents (Note 8)	-6 736	10 138
Cash and cash equivalents at the end of period	82 175	88 911

Veiko Haavapuu
Financial Director
         
AS Tallink Grupp
Sadama 5/7, 10111 Tallinn
E-mail [email protected]

Attachment

• Tallink Grupp AR 2018 ENG